Weak Holiday Sales Affect Sears' Outlook - Analyst Blog

By: Zacks.com

Posted: 1/10/2014 10:20:00 AM

Referenced Stocks: DLTR;M;SHLD;TGT

Sears Holdings Corp
.'s (
SHLD
) woes are far from being over. Yesterday, the company announced
one of its most disappointing holiday season sales results while
projecting heavy losses in the fourth quarter and fiscal 2013 as
well. Following the announcement, shares of this beleaguered
retailer fell 13.1% in the after-hour trading session. Also, the
bearish run for the stock continued, falling 13.8% in pre-market
trading hours.

In 2013, this Zacks Rank #4 (Sell) stock has given a meager
return of 17.6% to investors.

The company's total domestic comparable-store sales (comps)
for the nine-week period ended on Jan 6, 2014, declined 7.4%
comprising a fall of 5.7% and 9.2% at its Kmart and Sears
Domestic stores, respectively.

A massive sales fall in consumer electronics, along with
decline in grocery & household as well as toys categories
dragged down comps at Kmart stores. Sears Domestic comps were
mainly impacted by soft performance of its consumer electronics,
tools and home appliances categories.

Comps at the company's subsidiary, Sears Canada, declined 4.4%
during the nine-week period. Sears Canada's Apparel and
Accessories business registered a comps decline of 1.5%.

Looking at the holiday season performance, the company now
expects consolidated adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) for the fourth quarter
ending February 1, 2014, to be between negative $65 million and
positive $65 million, out of which adjusted EBITDA from domestic
business is anticipated to be negative $80 million-positive $20
million. However, adjusted EBITDA at its Sears Canada subsidiary
is expected to come in between $15 million and $45 million.

For full-fiscal 2013, the company anticipates consolidated
adjusted EBITDA to be between negative $284 million and $414
million of which, adjusted EBITDA from domestic business is
expected to be in the negative $308-$408 million range. Moreover,
adjusted EBITDA at its Sears Canada subsidiary is expected to
come in between negative $6 million and positive $24 million.

With regard to net income, Sears Holdings anticipates loss per
share in the range of $2.35-$3.39 on a reported basis for the
fourth quarter. However, excluding non-cash charges and one-time
expenses related to pension, Sears Holdings expects loss per
share between $2.01 and $2.98.

For fiscal 2013, the company projects loss per share in
between $11.85 and $12.88 on a reported basis and between $7.64
and $8.61 on an adjusted basis. Currently, the Zacks Consensus
Estimate is pegged at $9.26 loss per share, which may undergo
revision in the coming days following the company's guidance.

Sears Holdings has long been grappling with soft top and
bottom-line performance. The company's restructuring initiatives
have not been successful and Sears Holdings is constantly lagging
its peers
Target Corporation
(
TGT
),
Dollar Tree Inc.
(
DLTR
) and
Macy's Inc
. (
M
).

While Sears Holdings appeared to be returning to growth when
it posted improved year-over-year bottom-line results for all
quarters of fiscal 2012, the results of the first three quarters
of fiscal 2013 have dampened investor sentiment. During these
three quarters, the company's loss per share has widened
substantially on a year-over-year basis.

However, in an attempt to boost its financial performance, the
company has undertaken a number of measures, such as reducing
investment in sections of the company that no longer contribute
significantly to its growth. Moreover, Sears Holdings intends to
lower the number of Kmart and Sears full-line stores to slash
costs.

In late Nov 2013, the company's unit, Sears Canada Inc.
successfully terminated leases at 5 stores - 4 in Ontario and 1
in British Columbia - as part of its turnaround strategies to
enhance operations.

Moreover, as part of Sears Holdings' transformation plans
announced in October, the company filed a registration statement
with the Securities and Exchange Commission on Dec 6, 2013 to
spin off its Lands' End business. The company is also looking for
strategic alternatives for its Sears Auto Center business. The
moves will expectedly provide the company additional liquidity
and facilitate better focus on its core business.

At present, Sears Holdings is concentrating on cost
containment, inventory management and implementation of
merchandise initiatives to inflate margins. However, there is
still a long path to tread and investors are more concerned about
the company's current performance rather than reacting on
turnaround strategies, which are yet to show results.